Is Chipotle good for your portfolio?
A special quick take on Cinco de Mayo
Hello and happy Cinco De Mayo!
I thought this would be a good day to talk about the stock market’s very own king of Mexican food, Chipotle.
Since Chipotle IPO’d in 2006, the stock has gone up over 60 times. It famously doubled from its IPO price on the first day of dealing.
Chipotle has attracted some famous fans. Bill Ackman of Pershing Square Capital not only invested in the company but claimed to be a customer. Not many billionaires get their own lunch, but this was Bill’s first ever tweet:
I doubt Bill still gets his own lunch at Chipotle but Pershing Square’s last 13D (according to Whale Wisdom) disclosed a $1.95bn position. That shouldn’t influence your view of the stock; I am not Bill’s biggest fan.
[I am working on an asset manager series - Bill, Terry Smith, Cathie Wood. Let me know if others interest you.]
Top 25 Investors in Chipotle
Source: Whale Wisdom
Th e table lists the top 25 Chipotle shareholders. Bill’s exposure via Pershing Square stands out (the right hand column indicates the percentage of the US portfolio for each entity). Other than Pershing Square, only Edgewood has a sizeable bet – I don’t know them, but they look for companies which display:
Record of consistent earning power
Earnings growth rate in excess of the S&P 500
Dominant market position or proven strength
Attractive fundamental financial valuation
Superior management
Management/Insider ownership
Industry growth rate in excess of GDP growth
They hold them for the long-term, within a range of 2%-8% weighted positions.
I don’t doubt many of those factors apply to Chipotle, but let’s talk about the valuation for a second- here is the Chipotle forward price/earnings (P/E) chart:
Chipotle has traded at an average of 41x forward forecast earnings since IPO and in the five years pre Covid at 47.5x. Punchy stuff.
Now if you had bought Chipotle on its IPO, that would have been a fantastic trade, but I find these things incredibly difficult to spot. Yes, you can buy stock in a product you love, but that doesn’t mean it will be as successful as Chipotle. Peter Lynch had a lot of success in the US retail sector, buying into brands which were being rolled out across the US. That is more difficult today.
So that’s my quick take on Chipotle. I thought it would be fun to take a quick look at the stock today, given the date. Its not on my stock list, but paying subscribers can read on to learn why I recommended Chipotle and peers after Covid and what I think of the group now.